GameStop Stock rises as short sellers get hit

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Short Sellers from

GameStop

stock has just been expressed. Shares of the video game retailer rose nearly 94% on Wednesday, although profits shrank to about 57% due to the market closing.

In an email to Barron’s, Ihor Dusaniwsky, S3 Partners, showed optimism following news Monday that Chewy co-founder Ryan Cohen and two other former Chewy executives are joining GameStop’s (ticker: GME) board. This, coupled with the results of holiday sales, appears to be a ‘long tsunami for sale’, according to Dusaniwsky

Barron’s recently noted, citing short-selling data from S3 Partners, that the stock appears to be up for a short press, when demand for a stock rises briefly as investors rush to cover the bets that the price will fall. Investors are betting on GameStop shares, given industry trends such as the growth of free games. The growing tendency of consumers to buy games online, rather than to buy copies in stores, has left the company’s physical disk business in an awkward position.

With increasing competition from e-commerce sites and larger retailers such as

Walmart

(WMT),

Best buy

(BBY) and

Target

(TGT), it will probably require a bold new strategy to reverse GameStop. It looks like investors are now predicting that Cohen and the company may find it.

By the end of Wednesday, more than 143.5 million GameStop shares had been traded – according to Dow Jones Market Data, almost double the previous volume record of 77.15 million shares on 9 October. The stock closed 57% higher at $ 31.40, which was the highest close since August 2016.

According to San’s Dusaniwsky, short sellers for the day reduced $ 812 million in market losses.

“Although I agree that shorts are currently being pushed out of their positions due to huge losses to the market, it’s a lot like the demand for chicken and egg,” Dusaniwsky writes, adding that he believes long buy to a short coverage led. rather than the reverse.

Dusaniwsky does not expect a major drop in equities over the next few days, noting that short sellers lost $ 968 million in market losses in 2020. Instead of coming out, short sellers increased their positions.

Standpoint Research Ronnie Moas downgraded the stock to Hold from Buy after the move. Moas noted that he recommended the name on December 29, 2016, when the stock traded around $ 25.

“I can no longer hang my highest recommendation on this name, given the recent absolute and relative move,” he wrote on Wednesday.

GameStop shares had a large portion of the one-day pops. An agreement with

Microsoft

caused a 44% increase on October 8, but analysts noted that it was an everyday cloud-based infrastructure announcement. Even with some profit sharing on GameStop’s sales of Microsoft’s Xbox Game Pass Ultimate, it apparently did not move the needle.

‘The profit share helps, but may not be incremental to lost sales / profit from the move to digital. And, more digital also means less publishing [games], the largest profit and loyalty manager [for GameStop], ”Wrote Seth Sigman, analyst at Credit Suisse, at the time.

Write to Connor Smith by [email protected]